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Updated April 22, 2022
Overview of the Treasury Department’s Federal Payment Levy
and Treasury Offset Programs
The U.S. Department of the Treasury, through the Bureau
Origin and Operation of the FPLP
of Fiscal Service (BFS), has two programs for collecting
The Federal Payment Levy Program was established by the
delinquent debt owed by individuals, businesses, and other
Taxpayer Relief Act of 1997 (TRA97, P.L. 105-34) in
entities to federal and state government agencies. They
Section 6331(h) of the Internal Revenue Code (IRC).
differ mainly by the type of debt each program collects.
Congress intended the FPLP to improve the collection of
delinquent federal taxes in two ways. First, the program
The Federal Payment Levy Program (FPLP) collects
allows the IRS to share with the BFS the taxpayer
delinquent federal tax debt only. In this case, the BFS
information needed to set up a continuous levy for specific
collaborates with the Internal Revenue Service (IRS) to
taxpayer accounts. Second, IRC Section 6331(h) authorizes
collect this debt by placing a continuous levy on eligible
the IRS to offset certain federal payments to delinquent
federal payments to delinquent taxpayers.
taxpayers. Before TRA97 was enacted, the IRS was not
permitted to establish an automatic process for offsetting
The Treasury Offset Program (TOP) collects a variety of
federal payments to delinquent taxpayers. The BFS and IRS
state tax and nontax debt and federal nontax debt. In this
have managed the program since it began in July 2000.
case, the BFS collaborates with federal and state
government agencies to collect delinquent debt (including
The cost to the BFS of operating the program is an
past-due child support) by offsetting certain federal
estimated $220 million from FY2023 to FY3032. Currently,
payments to delinquent individuals. Federal nontax debt
the IRS reimburses the BFS for its services out of
consists of direct loans, defaulted guaranteed loans,
appropriated funds. The Biden Administration’s FY2023
administrative debt (e.g., salary and benefit overpayments),
budget request for the IRS calls for allowing the BFS to
and unpaid fines and penalties.
cover its costs from levy collections, a change that would
reduce administrative and overhead costs for both the IRS
As Table 1 shows, the TOP collects over nine times the
and the BFS.
amount of delinquent debt collected by the FPLP.
The FPLP facilitates the collection of delinquent federal
Table 1. Amount of Delinquent Federal and State Tax
taxes by levying designated federal payments disbursed by
and Nontax Debt Collected Through the Federal
BFS to businesses and individuals holding such debt. A
Payment Levy Program (FPLP) and the Treasury
levy remains in place until all delinquent taxes are paid in
Offset Program (TOP), FY2015 to FY2018
full, including penalties and accrued interest.
(Mil ions of Dollars)
Current law allows the following payments to be levied
TOP:
under the FPLP up to the specified limits:
State Tax
TOP:
and
Federal
up to 15% of federal employee retirement annuities;
Fiscal
Nontax
Nontax
Year
FPLP
Debt
Debt
Total
up to the full amount of federal payments to federal
vendors;
FY2015
$724
$3,063
$3,252
$7,039
FY2016
$692
$2,927
$3,525
$7,144
up to the full amount of federal employee travel
advances or reimbursements;
FY2017
$683
$2,850
$3,724
$7,257
FY2018
$679
$2,712
$3,805
$7,196
up to 15% of Social Security Old Age and Survivor
benefits and Railroad Retirement benefits, excluding
Source: U.S. Department of the Treasury, U.S. Government
disability and supplemental security income payments;
Receivables and Debt Collection Activities of Federal Agencies, Fiscal Year
and
2018 Report to the Congress, August 2019.
up to 15% of some federal salaries.
Both programs rely on the same BFS database of persons
and companies with delinquent state and federal tax and
These limits mean, for example, that for someone who
nontax debt. Federal and state agencies that are owed
receives a monthly Social Security retirement benefit of
delinquent debt (making them creditor agencies) provide
$1,000, no more than $150 could be levied through the
and update the information stored in the database.
FPLP to pay a delinquent federal tax debt.
https://crsreports.congress.gov
Overview of the Treasury Department’s Federal Payment Levy and Treasury Offset Programs
To initiate a levy, the IRS sends an electronic file with tax
(CSP), Treasury-designated debt collection centers, or the
debt information to the BFS, which then adds it to the
Department of Justice.
database for delinquent debt. The BFS then searches a
separate database of pending federal payments for a match
For debts referred to the CSP, the BFS attempts to collect
between the name and taxpayer identification number (TIN)
them through a variety of actions. These include sending
of the delinquent taxpayer and the name and TIN of persons
demand letters and trying to establish phone contact with a
scheduled to receive federal payments.
debtor; reporting debt to consumer or commercial credit
bureaus; and garnishing the wages of a debtor. The BFS
When a match is found, the BFS notifies the IRS, which in
also has the option of referring delinquent debt to TOP or
turn notifies that person of its intent to levy qualified
private debt collectors.
federal payments until his or her tax debt is paid in full. If
the person does not reply within 30 days, the IRS may
In general, the federal payments eligible for levy under the
authorize the BFS to initiate a continuous levy of those
FPLP are also eligible for offset through the TOP. The
payments. The levy remains in effect until the delinquent
same percentage limits apply in both cases. Up to 100% of
taxes are fully paid, or the person makes an arrangement
federal income tax refunds may be offset, including refunds
with the IRS to settle her or his tax debt.
from refundable tax credits like the earned income tax
credit (EITC). Like the FPLP, certain federal payments
When a payment is levied, the BFS sends a letter to the
cannot be offset through the TOP. If someone has both
taxpayer explaining which payment was reduced and by
delinquent federal tax and nontax debt, paying off the tax
how much, and advising the individual to contact the IRS to
debt is a higher priority. Only after the tax debt has been
come to an agreement on paying off the debt.
paid in full can a federal payment be offset for nontax debt.
Some federal tax debt cannot be collected through the
The process of offsetting a federal payment through the
FPLP. For example, the IRS cannot levy the assets of
TOP is similar to levying a federal payment under the
persons who are in bankruptcy proceedings, who applied
FPLP. Creditor agencies (federal and state) submit
for tax relief as an innocent or injured spouse, who entered
information about delinquent debts to the BFS. Before it
into an alternative payment agreement with the IRS (e.g.,
disburses an eligible payment, the BFS compares the
offer-in-compromise), or who suffered specified hardships
payment information with information in its delinquent
(e.g., residing in a federally declared disaster area). Largely
debtor database. If there is a match, the BFS offsets the
because of these limitations, 56% of the delinquent
payment, to the allowable extent, to satisfy the debt.
individual federal tax debt was exempt from the FPLP in
April 2020; the remaining 44% totaled $134.2 billion.
In the case of federal nontax debt, the BFS notifies the
debtor, the creditor agency, and the paying agency when an
The amount collected through continuous levy each year is
offset is performed. The BFS sends the amounts collected
a small fraction of the total amount of delinquent tax debt in
through offset to the creditor agencies, after subtracting its
taxpayer accounts subject to active payment levy. This
fee for conducting the offset. Federal nontax debt cannot be
suggests that it can take a long time to pay off such debt,
referred to TOP if a debtor has filed for bankruptcy or has
especially in cases where less than the full amount of
applied for tax relief as an innocent or injured spouse.
eligible payments can be levied. Social Security payments,
only 15% of which can be levied through the FPLP,
Policy Issues Raised by the FPLP and the TOP
accounted for 72% of the federal payments levied in the
A recurring issue with the FPLP has been whether to levy
first six months of FY2020. The amount of delinquent
federal payments to low-income persons. Imposing a
individual and business tax debt subject to FPLP levy in
continuous levy on payments to these individuals might
FY2019 totaled $107.3 billion, while tax debt paid through
cause or exacerbate financial hardship. Responding to
the program was $801.5 million (0.7% of the total.).
pressure from the National Taxpayer Advocate (NTA), the
IRS placed a low-income filter (LIF) on the FPLP in
Origin and Operation of the TOP
January 2011 to prevent low-income persons from having
The Treasury Offset Program was enacted as part of the
their federal payments levied. The eligibility requirements
Debt Collection Improvement Act of 1996 (DCIA, P.L.
for the filter do not exempt all low-income persons from the
104-134). The act authorized the Treasury Department to
FPLP.
create a centralized mechanism for reducing federal
payments to pay off delinquent federal nontax debt and a
A contentious issue with the TOP has been offsetting the
variety of state debts, under IRC Sections 6402(d), 6402(e),
EITC to pay delinquent federal student loan debt. The credit
and 3716.
is refundable. Refunds received by EITC recipients who
have defaulted on federal student loan payments are subject
Under the TOP, the BFS is allowed to offset a variety of
to offset under the TOP. Some have called for exempting
federal payments to recover someone’s delinquent federal
the EITC from offset because of its financial benefits for
nontax debt, unpaid child support, or certain delinquent
low-income persons with federal student loan debt.
state tax and nontax debt. To be eligible for collection
through offset, federal nontax debt generally must be
delinquent for more than 120 days, legally enforceable, and
referred to the TOP directly by a creditor agency or
Gary Guenther, Analyst in Public Finance
indirectly through the BFS’s Cross-Servicing Program
IF11671
https://crsreports.congress.gov
Overview of the Treasury Department’s Federal Payment Levy and Treasury Offset Programs
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https://crsreports.congress.gov | IF11671 · VERSION 3 · UPDATED